A “Waiver of Subrogation” is a common provision found in most self-storage rental agreements. It involves the subrogation rights of an insurance company as to whether it may assert an action against a party who causes the harm for which the insurance company is required to pay its insured. Typically, if a tenant is damaged by a landlord’s action and the tenant’s insurance company pays on that claim, the tenant’s insurance company has the right to “step into the shoes” of the tenant, its insured, and pursue a claim against the landlord to recover what it paid the tenant on its claim. With a waiver of subrogation signed by a tenant, the tenant may have removed its insurer’s right to seek recovery against the party who caused the harm. In other words, it prevents the insurance company from seeking reimbursement for its losses. The insurance company’s rights are limited because its insured has given up their right to recover as part of its negotiated contract.
Is this fair for an insured to waive the rights of its insurance company?
The majority of courts would say yes, that contracting parties are permitted to allocate risk between them and to limit either of their insurance companies from going back against the other to recover for the loss. The philosophy is that if the parties who had insurance were able to then have their insurance companies recover against the party at fault, litigation would ultimately ensue. With a waiver of subrogation, each party assumes its risk through its insurance and the risk of loss can be controlled based on the insurance coverage that each party has.
In self-storage, this applies primarily to the world of tenant property loss or damage claims. If a tenant has a tenant insurance policy, the insurance company paying on that claim might typically seek to recover against the storage operator who may have been responsible for the loss. But, if the tenant’s rental contract provides for a “waiver of subrogation”, then the insurer who steps into its customer’s shoes will find that its rights of recovery against the facility operator have been waived. Generally, self-storage tenant property insurers understand this risk and price their policies accordingly to assume the risk of no reimbursement if it pays out on its customer’s claim.
However, in other types of contracts, a party who signs a waiver of subrogation must verify that its insurance company will permit such a waiver. If the insurance policy does not permit the waiver, and the insured waives the right of the insurance company to pursue its claim for recovery, the insurance company would arguably have the right to deny coverage to its insured since it breached its contract with the insurance company by accepting the waiver language in its subsequent contract.
A common waiver of subrogation provision in a lease might look like this:
Landlord and Tenant will each look to its own insurance for recovery of any loss resulting from fire or other casualty. Landlord and Tenant waive any right of recovery of insured claims by anyone claiming through them, by way of subrogation or otherwise, including their respective insurers.
Or:
Occupant waives any right of recovery against Owner or Owner’s Agents for insured or insurable claims of Occupant, and Occupant waives insurance subrogation against Owner’s insurers, if any, for all claims covered by Occupant’s insurance.
So, a storage operator would be wise to include a waiver of subrogation in its self-storage rental agreement. It should also check with its third-party tenant insurance program provider to verify that its policy grants permission for its customers to accept this provision and still obtain coverage.
Thanks to Don Sedlacek from MiniCo for submitting this topic. Until next month, happy storing!
Scott Zucker is a partner in the law firm of Weissmann Zucker Euster Morochnik, P.C. in Atlanta.